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Microsoft, Verizon to Form DSL Venture

Telecommunications: Alliance provides edge over AOL in battle for broadband customers.

June 21, 2002|From Reuters

Microsoft Corp. and Verizon Communications Inc., the biggest U.S. telephone company, said Thursday that they will launch a co-branded high-speed version of the software giant's MSN online service.

The digital subscriber line broadband service, to be built on Verizon's network using phone lines to deliver high-speed Internet access, will be launched next spring.

It will offer customers a portal with exclusive broadband content, the companies said.

The deal gives MSN, which operates both as a Web portal and an Internet dial-up service, a foothold in the growing market for broadband access while rival AOL Time Warner Inc. struggles to provide a competing broadband offering to prevent customers from switching to alternative services.

"This is the right way to do it and put it together," said Microsoft Chief Executive Steve Ballmer.

Through the deal, Microsoft hopes to boost its 7.7 million MSN users by tapping into Verizon's DSL user base of 1.4 million, with capacity to serve 34 million.

MSN, which also has a similar agreement with Qwest Communications International Inc. to jointly market MSN and Qwest's narrow-band dial-up and broadband access services, now will market Verizon as its preferred broadband provider.

The MSN-Verizon announcement came during the same week that Qwest's CEO was ousted and replaced as investor concern mounted about its heavy debt load and its accounting practices.

New York-based Verizon also will sell MSN as the preferred portal and service provider, and either company will charge customers for the co-branded service, which is expected to cost between $39.95 and $49.95.

Verizon CEO Ivan Seidenberg said he was not concerned about the risk of MSN and Microsoft Windows' features, such as instant messaging, Internet phone and video chatting, cannibalizing Verizon's conventional phone services.

"In the same way that wireless has turned out a be a substitute for certain land-line services, we need to create new sources of growth with broadband," Seidenberg told Reuters.

Ballmer said he thought such messaging and videoconferencing features would be the "killer application" for broadband services rather than premium content such as sports and entertainment delivery via the MSN portal.

Microsoft and Verizon said they will share revenue in the alliance, but declined to disclose details.

The alliance marks the latest development in a string of marriages between Web content providers and telecommunications infrastructure providers.

Redmond, Wash.-based Microsoft has been forging deals with cable-based broadband providers to provide a high-speed Internet platform for MSN. AOL Time Warner also has been seeking to ally with cable partners to beef up AOL Broadband.

Microsoft shares fell 26 cents to $54.10 on Nasdaq. Verizon gained 13 cents to $39.94 on the New York Stock Exchange.

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